The Flip-Side of Cultural Diversity?

A study conducted by Harvard political scientist Robert Putnam finds less civic activity in diverse communities.

The study is the largest ever on civic engagement in America, based on detailed interviews of nearly 30,000 people across America. Putnam surveyed residents in 41 US communities, sorting residents were into the four principal categories used by the US Census: black, white, Hispanic, and Asian. They were asked how much they trusted their neighbors and those of each racial category, and questioned their civic attitudes and practices, including their views on local government, their involvement in community projects, and their friendships.

The Findings: Lower “Social Capital”

The study found that the greater the diversity in a community, the fewer people vote and the less they volunteer, the less they give to charity and work on community projects. In the most diverse communities, neighbors trust one another about half as much as they do in the most homogenous settings. The study found that virtually all measures of civic health are lower in more diverse settings.

Putnam has studied the problem of declining civic activity for quite some time, finding that the US has experienced a pronounced decline in “social capital” – which refers to the social networks — friendships, religious congregations, neighborhood associations and so on. He states that when social capital is high, communities are better places to live, neighborhoods are safer, people are healthier, and more citizens vote.

Putnam writes that those in more diverse communities tend to:

distrust their neighbors, regardless of the color of their skin, to withdraw even from close friends, to expect the worst from their community and its leaders, to volunteer less, give less to charity and work on community projects less often, to register to vote less, to agitate for social reform more but have less faith that they can actually make a difference, and to huddle unhappily in front of the television…People living in ethnically diverse settings appear to ‘hunker down’ — that is, to pull in like a turtle.”

These findings challenged the two dominant schools of thought on ethnic and racial diversity, the “contact” theory and the “conflict” theory. Under the contact theory, more time spent with those of other backgrounds leads to greater understanding and harmony between groups. Under the conflict theory, that proximity produces tension and discord. But Putnam’s findings reject both theories: In more diverse communities, there were neither great bonds formed across group lines nor heightened ethnic tensions, but a general civic malaise, with levels of trust lower even among members of the same group.

The “Diversity Paradox”

In a nation that is inexorably becoming increasingly diverse, how are we to interpret these findings?

First, it is important to note that there are also some very positive recent findings about diversity, While ethnic diversity may, in the short run prove a liability for social connectedness, other research suggests it can be a big asset when it comes to driving productivity and innovation. In high-skill workplace settings. Scott Page, a University of Michigan political scientist and author of “The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools, and Societies” finds that the different ways of thinking among people from different cultures can be a distinct advantage:

Because they see the world and think about the world differently than you, that’s challenging. But by hanging out with people different than you, you’re likely to get more insights. Diverse teams tend to be more productive.”

Page calls this the “diversity paradox.” He thinks the contrasting positive and negative effects of diversity can coexist in communities, but we must be wary of civic engagement falling off too far.

Putnam’s Take

When he published a detailed analysis in the journal Scandinavian Political Studies, Putnam argued that the negative effects of diversity can be remedied, and that history suggests that ethnic diversity may eventually fade as a sharp line of social demarcation.

In the final section of his paper, Putnam discusses how social identity can change over time, stating that experience shows that social divisions can eventually give way to “more encompassing identities” that create a “new, more capacious sense of ‘we.”

He also points out that increasing diversity in America is not only inevitable, but ultimately valuable and enriching. To help reduce divisions that hinder civic engagement, he suggests programs such as expanding support for English-language instruction and investing in community centers and other places to foster meaningful interaction. Putnam states:

I think over the long run, as we get to know one another, and as we begin to see things that we have in common with people who don’t look like us, this allergy to diversity tends to diminish and to go away. So this is not something that I think as an argument against immigration. On the contrary, actually, I think in the long run we’ll all be better. But I don’t think that progressives and integrationists like me do our cause any service by hiding from ourselves the fact that it’s not easy.

Putting It Into Perspective

I believe it is important to remember that social diversity is a rather recent phenomenon, and the American consciousness is still evolving as is plainly demonstrated by the obvious dog whistle racism of the anti-Obama crowd.

What is also important to note is that Putnam does not extrapolate some universal principle that heterogeneous societies have any less potential for social cohesion than homogeneous ones -only that it takes time for people to look past their differences, and the American experience demonstrates that over time society can change.

For example, one of the remarkable aspects of the study is that it focuses on diverse communities. In fact, 50 odd years ago diverse neighborhoods were unheard of. I recall the changes in my old neighborhood, Bedford Stuyversant, Brooklyn. There was “white flight”following the construction of the subway line between Harlem and Bedford in 1936, as African Americans left overcrowded Harlem for more available housing in Bedford–Stuyvesant. But today, my daughter lives right near my old home in Clinton Hill, which is now a diverse neighborhood.

So it would not be fair to overgeneralize based on a study of diversity given such a short time frame.

Our Polarized Society

I believe that it would also be mistaken to lay off the problems of American polarization on attitudes about race on the part of the members of society themselves. To put this in perspective, bear in mind that even as America’s oligarchical structures have tightened over the past few decades, society as a whole has nonetheless managed to trend toward a more diverse perspective.

This has occurred despite increased political polarization. When there is a demonstrative and concerted effort by the wealthiest class – including the media and politicians it controls- to manipulate people’s thought processes such that they devolve into a divisive, polarized mental framework, we should avoid the temptation to simply cite racial attitudes. While this is a contributing factor, alienation has much deeper roots, and It takes a great deal in such a divisive environment to take the bull by the horns and overcome the mental conditioning that is damaging the cohesiveness of American society,

I observe that change is inspired by trauma and shock. And given the increasing disparity in wealth distribution, mistrust of our leaders, expanding unemployment and the decline of the American middle class, we have a very interesting opportunity as a society today to evolve – together.

The key is to see past our differences, and Putnam agrees with me here. The only thing holding us back is that we submit to the mechanisms of control.

An orphan can be defined as “One who lacks support, supervision or care”.
How many do you have in your CRM database? How many customers have simply become dormant and shuffled into an inactive or unassigned category?

In a recent conversation with my client from a major life insurance carrier, I was appalled to learn that her company had well over 100,000 orphaned policyholders. In insurance-speak, these are folks who originally purchased a policy from an agent, but were never re-assigned after that agent left the company.

Many industries have a similar category in their database. Inactive bank accounts, infrequent flyers, one-time visitors… the list goes on. It gets me thinking: how many organizations could use a shot in the bottom-line? This category represents a huge untapped asset:

Orphans are never contacted. You have forgotten about them, and they have forgotten about you. How likely are they to ever upgrade or buy another product or service from you?

If your competition is effectively marketing – and you know they are – how many competing offers can your orphans resist? Retention rates suffer when customers are ignored.

The ROI of Marketing to Orphaned Policyholders

With the potential for this scope of increased revenue, it makes no sense to me that so many insurance companies do not devote any attention to their orphaned policyholders. Political turf issues over account re-assignment? Possibly. “Don’t rock the boat” and “Let sleeping clients lie” mentality? Maybe. Inertia? Most likely.

Case Study: A short while back, I worked with a major hotel chain to develop a multi-pronged marketing campaign. Our objective was to revitalize their “dormant” clients: those who had not booked a room within the previous 24 months. Of the many successful initiatives we launched, the highlight was going back to the dormant customers.

After modeling their data against the frequent guests and re-soliciting a predictive-modeled group with an offer, we generated an ROI of 1,090%!

Unheard of? Yes. But true. And I could predict similar successes in your own organization.

So take a look at your entire customer file. Find those pockets of orphaned customers who have been ignored for whatever reason. Develop a strategy to solicit them with a product offering using a predictive model-driven approach. The incremental revenue generation and low acquisition costs are likely to amaze you, and will demonstrate once again the truism that:

Your Best Customer is Your Current Customer.

Mark Weishaar is a veteran financial services direct marketer and senior executive delivering broad range of leadership responsibility, experience and accomplishment across brand strategy, marketing, loyalty programs, customer data analytics, distribution, CRM, and social media on a worldwide basis. He has directed the sales & marketing of a wide variety of financial services products and programs and held senior level roles in start-ups and Fortune 100 companies in direct marketing environments, and traditional agent/advisor companies. He has a unique ability to analyze and develop actionable marketing and sales programs with measurable ROI improvements.

She shares some approaches for overcoming those challenges that allows markerters to more effectively create and repurpose compelling content.

Three Strategies

Strategy 1: Be an avid journalist to your internal audience

In brief, there is no substitute for interaction with your field organization and customers. Your notes from these interactions should include insights from customers that can be summarized in a report and communicated to your stakeholders.

Liu’s recommendation is to repurpose these valuable insights as “Industry Newsflashes,” “Customer Insights,” and “Opportunity Analysis” for your internal audiences. Why is this important?

Marketers often fail to realize that their most important audience is the internal one. To market anything successfully, one must first and foremost create as much visibility as possible internally. Every employee is your message carrier. You will not become a rock star marketer if you don’t have the support of your internal stakeholders.

Strategy 2: Insource your content, but control the output

To get a good handle on your subject matter, it’s important to identify the domain experts – at least one person in each cross-functional area who can serve as your go-to resource. This will give you a ready supply of content.

Getting subject experts to be responsive is a key challenge. You’ll need to schedule some time interviewing them in person. The conversation should be targeted to extracting content from them in 30 minutes or less. One way to set this process in motion is to create an editiorial calendar.

If you promote your experts and give them visibility, you can gain you loyal sponsors and support for your endeavors.

Strategy 3: Outsource your topics to industry experts

One of the most common failures that I see marketers make in trying to promote themselves as thought leaders or impress audiences with their products and services is the mistake of “singing your own praises.” To gain the attention and trust of the customer, it’s much better to get someone else to do the praising in an indirect way.

In the technology space, I engage industry experts, media personalities, and well-known bloggers. The kind of perception you are trying to create is this: “Wow, these guys are associated with her? Impressive.”

To build on this, you can build an onging campaign in which your expert can help you in various activities. Some ideas:

An initial article can turn into a moderated customer forum. The findings from the forum become a whitepaper. The whitepaper can be used to develop a video case study. And so on. Such linkages can continue to develop and mature over the life of the catmpaign.

As Liu points out, “content is the bread and butter of what we do in the world of marketing.” Yet it often seems to get lost in the flurry of planning and execution, and becomes an afterthought. A successful marketing organization exists as part of a larger context of consistent messaging accross all touch points, internal and external. Nothing promotes an organization’s brand value more effectvely than shared messaging.

Marketing Models That No Longer Work

Rich Meyer of Newmediamarketing.com provides a list of 10 Marketing Principles That Aren’t True Anymore. His core observation is that mass marketing models no longer optimally address the new attitudes and behaviors of the socially connected consumer. For instance, while TV drives awareness, it is increasingly the Internet that drives conversion.

Of the 10 marketing principles that Rich finds increasingly irrelevant, I will highlight those that I consider to be the top 3. It is important to consider these consideration points in the context of your own product and marketing environment because principles that work best for one type of product marketing environment may not work as well in others.

3 Marketing Principles To Rethink

1. Mass Segmentation Models – The old mass segmentation models are giving way to micro-segmentation. Here’s why: because people have more in common with those they follow on social media than their demographic peers, and because everything happens in real time online. Consequently:

…it’s more a relevant message to a relevant audience at a relevant time.

Customer segmentation is the practice of dividing customers into groups relevant to a particular line of business in order to decide how to relate to customers in each segment. The goal is to maximize the value of each customer to the business.

Micro-segmentation groups small numbers of customers into more precise segments, based on factors, including behavioral predictions in order to direct specific marketing actions to each micro-segment. The goal is to maximize the effectiveness of every contact with each customer.

The Process: For example, customers of an online gaming company might be segmented into Lifestyle Stage Groups, such as: 1) fun; 2) new; 3) active; 3) star; 4) churn; and 5) reengaged. Deeper dives into each Lifestyle Stage Group can be made by segmenting these customers into Segmentation Layers, using cluster analysis on sets of attributes that share a common context, including behavioral and demographic. By associating each customer with a string of different clusters, customers are then grouped together as micro-segments.

Intended Results: Micro-segments, which typically contain very few customers each, allows for highly personalized predictive analysis and marketing action optimization. Tracking and analyzing how different marketing actions affect the spending behavior of different micro-segments makes it possible to predict the effectiveness levels of different marketing actions on different segments. As a result, marketers can better determine which marketing approaches will have greater impact on each group of customers. Further, since the micro-segments are dynamic, and there is movement through the Lifestyle Stages, dynamism of the customer path can be factored into the analysis. As explained by micro-segmentation company, Micromove:

Most companies view segmentation as a method of clustering similar customers together at a given point in time, but they completely disregard the path or route that each customer has taken to reach his or her present segment. By analyzing customers based on their movement among segments over time, [micro-segmentation] achieves far more accurate segmentation than any other known method.

Focus on Customer Lifetime Value in segmentation allows for better targeted marketing based on more precise predictive customer behavior models.

2. The Purchase Funnel (Reach and Frequency)

For products where the purchase process is more complex, building awareness through reach and frequency is only a first step. In line with theConsumer Decision Journey as defined by McKinsey, to improve conversion, you need to rethink the “purchase funnel” in favor of a more complex consumer decision model.

My article, The Customer Decision Journey: Research Overturns the Marketing Funnel shows that the old consideration funnel has given way to a decision loop (“the consumer decision journey”) that takes place in a less linear and more complicated purchase environment where there are numerous touch points and key buying factors resulting from the explosion of product choices and digital channels, coupled with the emergence of an increasingly discerning, well-informed consumer.

You have a trigger of some sort, where people start across the decision journey — they are now going to move towards purchase. The first stage is initial consideration. In many industries, people actually start in their initial consideration of a brand with a relatively narrow list, we believe because of the busy lives and bombardment of media — it’s just very difficult to get through all this clutter in this consumers initial consideration set. However, once the consumer decides they are going to buy a product, they move into a stage that we call active evaluation. It is here that the number of brands they are considering increases. Which is exactly the opposite of the premise of the funnel, going from broad to narrow. This is the stage when the consumer is intent on purchasing and they are actively researching the product.

3. Acquisition Only

Your business model will naturally continue to depend on new customer acquisition goals, but not exclusively. Marketing models based on new customer acquisition alone that do not also have strategies for retention and engagement break down over time, and the reason that pyramid schemes ultimately collapse is that there are a limited number of new customers to be sold.

Brand loyalty is important because brand enthusiasts will reengage and repurchase, and influence others to whom (s)he is socially connected to purchase and engage. So it’s vitally important today to keep the customers you have happy by delivering on all brand touch points, and creating a social context for them to become brand ambassadors.

Apple is the oft-cited example of a company whose brand loyalty-oriented model has been extremely successful. While not the PC market share leader, Apple has leapfrogged other PC makers in profitability because their customers are willing to pay more for a better brand experience.

Lessons For Marketers In The Age of Socially Driven Conversion

Strategy: Traditional messaging is geared toward trying to get into the consumer’s initial consideration stet. However, rather than continue to push ads and promotions out to broad groups of consumers, marketers need to be sure that their marketing activities are aligned against how their consumers research and buy products.

Consider the likely results if the customer reaches out during the active evaluation stage but is not provided the facts and testimonials that (s)he is looking for to make the purchase decision. The budget spent on gaining recognition and getting into a customer’s initial considerations set will not only fail to result in conversion, but will effectively deliver the client to a competitor who delivers on the customer’s pre-purchase expectations.

In essence, this means that the customer has moved past a brand’s promise to a brand’s value in the consideration phase. So marketers have to bridge the gap between consideration and conversion sooner by developing ways for people to talk about your product, and making word of mouth work in the age of socially driven conversion.

Social engagement doesn’t mean that, as Rich Meyer puts it, consumers necessarily “want to have a relationship with their salad dressing or butter…You also need to think more about your brand as media than just providing sales information online.”

In other words, since the joy of the purchase itself is often more than that derived from the product itself, what value are you delivering in the customer’s purchase experience? You need to emotionally connect to your customers and give them an emotional reason to select your brand. The choices consumers make are not rational ones.

Tactics: Tactics include being represented on independent internet sites where people go and research and buy products. If you don’t have enough presence on those types of consumer driven approaches, when the consumer is reaching out during active evaluation, you’re not there for them to find.

Rich Meyer summarizes the customer-centric approach in the age of socially-driven conversion extremely well:

I believe the greatest strength any marketer can have is his, or her, ability to understand the dynamics of their brand/product from a consumers POV. This means understanding what are the key drivers to conversion and where and when consumers want to interact with the brand. I love Oreo cookies but I don’t want to friend them on Facebook. Organizations that prepare for change and implement new marketing thinking will be ready to leverage new business and customers.

An Industry In Retreat

As reported in Health Life Pro, Prudential Group Insurance, a division of Prudential Financial Inc., which manufactures and distributes group life, long-term and short-term disability as well as corporate, trust-owned life insurance, accidental death and dismemberment and other coverage and plan administrative services, announced on October 9, 2012, that it is discontinuing the sale of dental insurance, offered primarily to the small-group market.

Prudential’s decision to drop these lines of business is consistent with a general trend among many large carriers to drop supplementary lines of business and concentrate on their core strengths, in order to focus resources on more profitable product lines.

Hartford recently sold their individual life unit to Prudential, including universal life, variable universal life, indexed universal life, term life and whole life insurance products, which they had offered through a variety of distribution channels in the U.S. As a result of the sale, Prudential will reinsure about 700,000 life policies that provide about $135 billion in coverage, giving them control over the $7 billion in assets and reserves backing the policies, and allowing them to take over management of $5 billion in separate account assets.

As I reported here, the Hartford was pressured by their largest shareholder to sell off supplementary businesses and focus on their core product suite.According to John Nadel, analyst at Sterne Agee, the sale of its individual life business frees up roughly $1.5 billion of statutory capital, “well more than the estimated $1 billion investors were expecting.” This transaction is the last of three planned business sales intended to allow the Hartford Group to focus on its strategically important businesses,in which it has greater scale and competitive advantages.

Concerns Over Long Term Care Insurance

Prudential’s decision to drop this line of business follows their decision in July to discontinue sales of new grouplong-term care insurance, due to complications with this type of product. The decision is said to be a tactical one which Prudential hopes can help them focus on their life and disability products, where it sees the greatest opportunity for long-term growth. Prudential discontinued sales of LTC group coverage in all states except Indiana, Iowa, Kansas, Louisiana and South Dakota, where the company is required by law to continue to offer products for a period of time. The decision is based on the continuing effects of low-interest rates and Prudential’s desire to achieve appropriate returns, enhance its long-term risk profile and maintain sustainable profitable growth, in its core group life and disability lines of business, according to the company.

A Troublesome Industry Trend

In recent years, a number of companies have expressed concern over the complicated nature of long-term care insurance. MetLife, Allianz, Aetna, UNUM and Guardian have all exited the business, largely because they say it is difficult to anticipate payouts due to the a rapid increase in healthcare costs. Genworth remains the last remaining major insurer in the Group LTC business.

With other leading insurance carriers leaving the group LTC market, there has been speculation about whether this product line can continue. Considering that Long Term Care costs are not covered under Medicare, and that the costs of Long Term Care can be devastating to seniors and their family members, this trend can be seen as troublesome.

Should we be concerned about the exodus of leading insurers from Group LTC?

Why LTC Matters

What Is Long Term Care Insurance (LTCI)?

Long Term Care expenses are the non medical costs of caring for a person who cannot take care of him/herself due to a chronic medical condition. Long term care services are not typically covered by health insurance or Medicare and can include:

In-home care

Nursing home or skilled nursing facility care

Assisted living facility care

Adult day-care

Alzheimer’s unit care

Hospice care

Since these costs are very expensive, and not covered by Medicare, uncovered LTC expenses can quickly devour a family’s financial assets:

In 2008, the average cost to stay in a semi-private room in a nursing home for one year was $68,000.*

The average cost of one year of in-home care was $18,000, assuming care was given by a home health aide about three times a week.*

Government benefits are only offered when a family has spent itself into poverty and qualifies for Medicaid. While people may try to transfer assets out of their name to qualify for Medicaid, the states can’t afford this anymore, and has been tightening the loopholes so that only the truly indigent will qualify for government support. Yet, according to the Department of Health and Human Services:

70% of Americans over 65 will need some long-term care at some point in their lives.

Only about 3% of adults have a private LTC policy.

Long Term Care Insurance (LTCI) safeguards a person’s financial benefits.

Is LTC Dead?

As Frank Zappa said about Jazz: “It isn’t dead; it just smells funny.”

According to Richard W. Samson of Employee Benefit Adviser, the exodus from Group LTC does not mean the death of the long-term care industry. He believes that the LTC industry will not only survive, but “may be preparing for vigorous new growth.”

Rather, it appears to be a fight for dominance between “multi-life” and “true group” plans.

And, in addition to multi-life, there are also LTC combinations, such as LTC riders on life insurance or annuities, that are being marketed by a number of insurers.

True Group vs. Multi-Life

True group benefit programs are typically used by larger companies, while multi-life programs are marketed to organizations of all sizes. The differences:

True group long-term care insurance issues a master policy to the employer or sponsor, has a group premium structure, and is typically guaranteed issue.

Multi-life LTC insurance issues no master policy, but individual policies to each insured member, and has generally greater policy design flexibility. However, in comparison with ordinary individual policies, it provides discounted standard rates and simplified underwriting for active employees.

While Genworth Financial is the last major insurer that continues to promote its true group as well as individual and multi-life plans, several carriers promote multi-life plans, including LTC. They include:

MedAmerica Insurance Company

LifeSecure Insurance Company

United of Omaha Life Insurance Company

Mutual of Omaha Insurance Company

Transamerica Life Insurance Company (U.S.A.) and Transamerica Financial Life Insurance Company (NY)

American General

Samson interviewed representatives of these companies, including Bill Jones, president of MedAmerica, who agrees that the industry is making a fundamental shift from group to multi-life. He states:

The traditional group plan is being outpaced by multi-life LTC insurance, which is more flexible and fine-tuned for modern organizations.

Med-America has introduced the LTC Complete Worksite Solutions product portfolio, which allows employees to enroll in a low-cost starter plan that may be expanded later.

LifeSecure, after their second year in multi-life LTC, reports that it now accounts for 75% of their placed premium.

A Transition Toward Voluntary Benefits

Samson reports that Eric Cantrell, president & CEO of Collateral Benefits Group, predicts that in the next 10 to 20 years, workplace benefits will largely be voluntary, and multi-life LTC insurance is well suited to a menu voluntary benefits.

Cost Sharing: This is consistent with the current trend in employee benefits, in which the burden of coverage is increasingly shifting from the employer to the employee.

Personalization: Additionally, with the commoditization of healthcare benefits, and increased focus on the individual’s needs, the “one-size-fits-all” or “cookie-cutter” traditional group plans simply don’t give employees enough choice among benefit features and premium costs. Multi-life has the advantages of greater flexibility and personalization, largely due to emerging technology. Benefit brokers and LTC insurance specialists, using electronic systems, can give employees individual attention and greater personalization without taxing the resources of the company.

Higher participation: As a result, while fewer than 10% of eligible employees typically choose to participate in traditional plans, multi-life programs tend to generate much higher, double digit participation rates – between 10% and 20%.

Larger market: True group plans tend to be limited to larger organizations, which tend to prefer to work directly with an insurance carriers. However, the Bureau of Labor Statistics reports that 54% of American workers (59 million) work for companies with fewer than 500 employees. Considering the larger market, and the higher potential participation rates, the market potential for multi-life LTC could grow to represent 70% to 80% or more of the total market.

Conclusions

A challenge for LTC insurance today is that most don’t yet recognize the risk. But as the American workforce ages, and we live and work longer and longer, the growing need for LTC protection will be increasingly understood, boosting the value of LTC benefits for recruiting and retention.

The market potential is enormous. The American Association for Long Term Care Insurance reports that total earned premium for the LTC industry in 2010 was about $11.7 billion. Based on the estimate of 10% market penetration, LTCI represents potential revenues of over a trillion dollars, $3 trillion over 30 years.

Despite the need and the market potential, awareness remains the major roadblock. Complex Long Term Care products have been a hard sell.

The one-to-one personalization that benefit brokers bring to multi-life worksite products could help overcome that barrier.

Ready, Fire, Aim?

Build it and they will come? If that were true, Marketers would be out of a job, wouldn’t they?

Rob Adams, senior lecturer at the business school at The University of Texas at Austin, and director of Texas Venture Labs, agrees. He should know. He is a leading voice on market validation who authored a book titled If You Build It, Will They Come? Three Steps to Test and Validate Any Market Opportunity. A former software executive, entrepreneur and fund manager, he has founded or financed more than 40 companies that have launched more than 100 products with transactions exceeding one billion dollars of capital. The book is a quick read with insights and best practices gleaned from his own experiences. His core proposition:

Companies can improve their performance by moving from the common Ready, Fire Aim approach to a Ready, Aim, Fire approach.

Ready, Aim, Fire

To give yourself a better chance of avoiding the 90 percent failure rate of most new product startups, move “aim” – market validation, that is, – up to the front. Rob’s recommendation?

Invest 10% of your product development budget up front to make sure the remaining money is spent right.

Case Study: Using a formula given in the book, Rob Adams provides an example that he has implemented to launch a startup marketing campaign. For the sake of simplification, the figures have been rounded.

$1 million: Initial budget.

$500,000: Allocated to product development.

$500,000: Allocated to launch, sales and marketing.

$50,000: (10% percent of $500K) Spent over an intense 60 days of market validation before product design even begins.

Why: The Case for Investing in Up Front Validation

What is the rationale for such a large expenditure on validation?

I would rather have my name on a $25,000 hole in the ground than a $1 million hole in the ground.

1. Wasted Resources: In an article in Inc., Rob points out that more than 65% of new products fail, for a total loss of $260 billion a year in the U.S. alone. With start-ups, the failure rate jumps to 90% – numbers that have been constant over thirty years.

2. The Customer is the Key to Your Success: Products usually fail to generate enough revenue because they don’t sell well enough, and can’t generate enough revenue to cover their expenses. That means that customers either feel they’re not compelling enough, or not worth the value for the price. Startups typically can’t survive the failure of a company’s first product. The failure of a new product in an established business can risk the company’s stability, depending on:

the strength of other revenue streams.

How many resources were lost on the failed product.

And Rob is quick to point out that, while investors or a parent company might cover shortfalls for a while, the offering must eventually generate returns that justify the capital and the risk that went into creating, marketing, and selling it, or the company will tend to fail.

3. Leapfrogging the Competition Puts You At the Leading Edge: Another important reason for Market Validation is to leapfrog the competition. Innovation tends to follow a fixed path, with one big idea begetting another, and so on. That linear approach to innovation doesn’t always get companies ahead of competitors, especially in the digital age. Consumers often learn that as soon as they buy the latest technology, the next big thing quickly emerges, making their purchase obsolete. Businesses often learn the same difficult lesson as they bring products and services to market, only to be trumped by companies with more sophisticated offers and deeper pockets. Companies have to continually innovate in an unending, linear cycle just to keep up. Companies that leapfrog the competition have an opportunity to change the game.

Case Study – Apple: Apple’s reinvention of the computer from a business to personal asset created a game-changing new industry, as did their reinvention of the mobile phone from a telephonic device to a mobile computing platform. More recently, while traditional laptop vendors focused on the technology- adding more speed, more memory, bigger screen size- Apple focused on how people use the technology, and made innovations on adding battery life, ease of use, and quick Web connectivity, and making their machines virtually bullet proof against virus. The result: unless Apple severely stumbles, their customers are committed and wouldn’t consider another vendor. Until other laptop manufacturers can make a compelling case, Apple has the corner on this market. Rather than trying to compete on price or technology, Apple discovered a way to leapfrog competitors on customer focus. The compelling case for Apple isn’t based on either technology or price – Apple is the most expensive in the market for comparable performance. For Apple’s market, price isn’t the deciding factor. Yet, without Market Validation, opportunities like these may not be recognized.

What: Market Validation: Real-Win-Worth Analysis

Market Validation is performed to probe, test, and validate a market opportunity before you invest large sums of money into product development. Whether you are designing, building, or selling products, whether you’re in a large corporation or a tiny start-up, whether your business is service- or product-based, Market Validation will significantly increase the likelihood your product will succeed in the market.

Developing a Real-Win-Worth Methodology: Using a Real-Win-Worth strategy of market validation (Is It Real? Can We Win? Is It Worth Doing?) has helped me to launch products to bypass the market share of major competitors. Real-Win-Worth was developed by by George S. Day, a Geoffrey T. Boisi Professor of Marketing and a codirector of the Mack Center for Technological Innovation at Wharton as a strategy tool for “undertaking a systematic, disciplined review of your innovation portfolios and increasing the number of major innovations at an acceptable level of risk.”

To do this, Day recommends two tools that can increase the proportion of major innovations in your portfolio while carefully managing their risks:

A risk matrix enables you to estimate each project’s probability of success or failure based on how big a stretch it is for your firm. The less familiar the intended market and the product or technology, the higher the risk.The R-W-W (“real,” “win,” “worth it”) screen helps you evaluate projects’ feasibility. The first step in using this tool–asking “Is it real” questions–helps you determine whether customers want your innovation and, if so, whether you can build it.

6 Questions to Ask Yourself

To evaluate the risks and potential of an individual project, you should be able to answer and score these three fundamental questions about the market opportunity: Is It Real? Can We Win? Is It Worth Doing? To do so, ask these six fundamental questions:

Is the market real? Explore customers’ needs, their willingness to buy, and the size of the potential market.

Is the product real? Evaluate the feasibility of producing the innovation.

Can the product be competitive? Determine whether the product can compete in the marketplace.

Can our company be competitive? Investigate how well suited the company’s resources and management are to compete in the marketplace with the product.

Will the product be profitable at an acceptable risk? Explore the financial analysis needed to assess an innovation’s commercial viability.

Does launching the product make strategic sense? Determine whether the project fits with company strategy and whether management can support it.

How: Using the Risk Matrix

Assemble a team to assess each innovation project’s potential risk using these criteria:

How closely target customers’ behavior will match current customers’

How relevant the company’s brand is to the intended market

How applicable your capabilities are to the new product

Worst Practice Study: McDonald’s once started offering pizza, assuming that the new product was closely adjacent to existing ones, and targeting its usual customers. The problem is that it violated McDonald’s service-delivery model: employees couldn’t make and serve a pizza within 30 seconds, and the project failed.

How: Using the R-W-W Screen

This tool is used to repeatedly test each project’s viability throughout a product’s development. The R-W-W screen exposes faulty assumptions, knowledge gaps, sources of risk, and problems suggesting termination. To use it, you need to develop a set of criteria such as the following:

Best Practices Study:

The Background: I served as Director of Marketing for a financial services company that was a major competitor in the Variable Annuity marketplace, which is one marked by keen competition and slim margins. This company was typically a late follower rather than an early entrant, and often found itself in the defensive position of competing on product features and cost, which placed great pressures on product profit margins.

The Opportunity: I identified an unserved niche market – people on the cusp of retirement. The problem is that annuitants who wanted to tap the cash in their contracts were subject to surrender charges (CDSC – Contingent Deferred Sales Charge) for the first 7 contract years or more. While this type of annuity was an excellent tax-deferred savings and accumulation vehicle for those saving for future retirement, there was no product appropriate for consumers in their 60s who were either just about to retire or recently retired and might need more immediate access to their contract funds.

The Organizational Challenge: The challenge was to move the organization from the late follower mentality to first-to-market to develop a new product solution that would place the company in a position of leadership and surpass the competitor’s market share.

The Process: I needed to change the mindset of the organization through a process people could buy into. To do this, I needed to get buy-in across disciplines by identifying easy wins that would have impacts early on. Using a R-W-W template, I looked at behaviors and needs in the marketplace, and verified the need – a segment that was unserved.

Real? I performed product concept testing among mid size financial planners and confirmed that it was a viable concept up front – before asking the company to put resources into development. I developed a recommendation for a 3-year contingent deferred sales charge product that would serve people on the cusp of retirement who had until then no product for their needs.

Win? Rather than develop individual products to serve segments where Manulife had no channel presence, we confirmed that there was a viable market and perceived need among mid size financial planners for this product.

Worth? We determined internally that such a product was actuarially feasible and would be a good fit for the company’s sales model. It would not cannibalize existing products, for example.

Result: The company, which had not typically been a first-to-market company, was first to market with this product. Sales goals were exceeded profitably, and we usurped the leading competitor’s market share.

The R-W-W methodology enabled us to leapfrog the competition. In this age, companies have to continually innovate in an unending, linear cycle just to keep up. Market Validation can help you uncover new opportunities to leapfrog the competition into positions of market dominance.

Why Provide A Personalized Experience Across Touch Points?

According to a December 2011 analysis from Janrain, in Q3 2011, personalization is important to consumers:

half of the consumers surveyed say that social login’s personalization capability is attractive to them

One-quarter are neutral.

One-quarter do not find the capability attractive.

The study also shows that personalization proves quite valuable.

50% say that if a website personalizes their experience, they are more likely to return to the site

46% say they are more likely to buy products/services from the site

38% would be more likely to recommend the site to others

33% are more likely to make purchases in-store.

2. Both Consumers and CEOs are More Demanding

A January 2012 survey of 94 retailers by Retail Systems Research finds that 63% of multichannel retailers expect the online channel to account for a sharp increase in their total sales by 2015. As commerce continues to flow through multiple channels including in-store, online, mobile and direct mail, it’s important to remember this basic lesson: consumers still give their business to companies that are more service-oriented and customer-focused.

3. Personalization Has Become an Important Differentiator

Here are some statistics:

A ChoiceStream study shows that personalization can drive 10% in incremental sales.

Yet, only half of the Top 500 online retailers are using personalization techniques.

Over 61% of retailers say personalization is among the most important merchandising tactics in web retailing (10th Annual e-tailing group Merchant Survey.)

Some estimates are that e-commerce will account for 20% to 30% of total retail sales in the U.S. in as little as five years

Lauren Freedman, president of the e-tailing group testifies that:

Personalization is critical, essential, and growing in importance because as merchants really want to grow conversion, giving the customer a targeted experience through personalization is more effective.

Think about your favorite in-store experience. The one where a salesperson on the floor makes suggestions, provides feedback, and helps you find what you need. You shop there consistently for a reason. That “personal shopper” model can be replicated across other touch points as well, whether it be online, via email, or even in catalogs. But retailers few and far between actually provide this experience across touch points.

4. Personalization Brings the Enterprise Together

Integrating online data into the offline world has endless opportunities. The key organizational roles that can implement and benefit from personalization include:

Merchandisers – Being attuned to seasonality, product inventory and demand, merchandisers who oversee the presentation of products can leverage the power of personal recommendations online, at in-store kiosks and Point-of-Sale.

Marketers – Personalized emails can be used to present recommendations and drive repeat visits both online and in-store, as well as to re-engage lapsed customers, to help create brand loyalists and advocates

Customer Relationship Management – Personalized recommendations can be deployed online, via email, in mobile-commerce environments and in-store if there is a way to tap into online customer activity at the cash register or in a call center environment. This will help CRM to maintain customer data and reengage and nurture customers while creating loyalty across channels.

Information Technologyleaders – They can use personalization to assure that solutions deployed are usable across multiple touch points with minimal or no impact on resources and technology assets for both integration and maintenance, as well as enable the use of data across all channels while protecting personal customer data.

Store (Brick-and-Mortar) Management – While relying on marketing and online promotion to drive shoppers to the door, having more information on the customer can help them to make a sale. By swiping a loyalty card or entering an online user ID and password, a prospective customer can give a salesperson a glimpse of their online behavior including what recommendations they clicked on or products they researched. This information can help the salesperson guide the customer to those same products that may be in-stock or on sale in the store.

The CEO – Since the CEO wants to assure that all the business groups are working in concert to assure customers are being seamlessly serviced and sales are being increased profitably across each channel, (s)he can readily appreciate the contributions that a comprehensive personalized recommendation strategy can deliver.

Leading retailers are leading the way in embracing personalized recommendations, and finding ways to integrate recommendations across each touch point. Companies in the financial services industry, where buying decisions hinge on highly personal circumstances and concerns, should be closely following these retail trends for opportunities to leverage them to provide a more personalized experience across touch points that can help drive the purchase process.